ASIA/US/EUROPE BOND & STOCK RECAP: 10Y YLD NEARS 2.0%

By William Sokolis

     CHICAGO (MNI) - 

US TSYS SUMMARY

Tsy firmer, off late Asia session highs on decent volume (TYZ w/510k), 10Y Yld

2.035%. EGBs firmer, sovereign spds wider vs. Bunds, following ECB QE-taper

chatter overnight 

- ECB member, Liikanen said ECB decisions could be taken in Dec. Equities weaker

(emini -9.00, 2455.75), gold firmer (+5.28, 1354.57), oil little weaker (WTI

-0.17, 48.92).

- Asia, early safe-haven bid amid ongoing N Korea tensions, concern over

Hurricane Irma, not expected to make Fla landfall until late Sat/early Sun.

Sources reported regional bank buying Tsys cash and futures, short covering,

prop and real$ buying 10s.

- London, Tsys spiked higher ahead the London open, Tsys futures drew fast money

buying in intermediates. Sources reported credit tied buying, MBS-tied buying in

cash 10s, various buy stops triggered.

- Swaps, spds running mixed, spd curve unwinding a portion of week's flattening,

modest receivers and payer unwinds in 2s and 5s, light deal-tied flow after

heavy issuance this week tops $55B over 3 sessions.

- Eurodollars,firmer, middle O/N range, good volume, Dec hike% down to 18.0.

GILT SUMMARY

Gilts are trading modestly lower ahead of NY session with the short-end seen

leading the underperformance and therefore bear flattening the curve. Price seen

weighed by a Reuters ECB sources story saying that the central Bank discussed

four options for QE including cutting monthly purchases to E40bln or even E20bln

and extending it by 6 or 9-months.

- 2-yr Gilt yield is +2.9bp at 0.174%, 5-yr +2.8bp at 0.410%, 10-yr +1.9bp at

0.982% and 30-yr +2.0bp at 1.648% according to Tradeweb. 

- Earlier, Gilts opened slightly higher, but very quickly reversed gains and

dipped lower as markets digested ECB Draghi comments which where deemed dovish

and overnight comments from Fed Dudley, Mester and George calling for another

rate hike this year.

- There was little to no reaction to a raft of UK data that showed a smaller

than expected trade balance deficit, higher than expected pick-up in

manufacturing production, but a sharp contraction in UK construction output.

- Majority if swap spreads are tighter with the 15-yr seen leading the way at

-3.3bp. While UK breakevens are mixed with 5-yr +0.5bp but 10s and 30s unch.

EGB SUMMARY

Bund yields are currently 1bp higher on the day at 0.318%. What looked like

being a quiet session was turned into disarray when ECB member, Liikanen spoke

to say that some ECB decisions could be taken in December and soon after a

Reuters ECB-source story highlighted that four QE scenarios were discussed

including a cut to E20 per month.

- A E20bln option is a deeper cut than many expect, although it cannot be a

surprise that more aggressive options were discussed than the standard E20bln

reduction, particularly if the QE programme is extended to 9 months or longer. 

- The Reuters story carried peripheral spreads much wider, hurting Spain

slightly more than BTPs. The 10Y Bund-Bonos spread is 4bp wider at 122.7bp. 

- With all the talk of QE in Europe today the EURUSD 5Y cross currency basis

swap has moved 2bp higher to 34.8bp. At the margin, and assuming no other

changes in credit spreads, this would help choke off some of the recently heavy

reverse Yankee issuance.

- Data was second tier, headlined by some weak Spanish IP data but French IP

that was in line with consensus.

--MNI Chicago Bureau; tel: +1 312-431-0089; email: bill.sokolis@marketnews.com

[TOPICS: MTABLE,M$U$$$,M$$FI$]